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Irs Forms 1040nr

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Irs Forms 1040nr

Irs forms 1040nr 11. Irs forms 1040nr   Casualties, Thefts, and Condemnations Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Casualties and TheftsDeductible losses. Irs forms 1040nr Nondeductible losses. Irs forms 1040nr Family pet. Irs forms 1040nr Progressive deterioration. Irs forms 1040nr Decline in market value of stock. Irs forms 1040nr Mislaid or lost property. Irs forms 1040nr Farming Losses How To Figure a Loss Deduction Limits on Losses of Personal-Use Property When Loss Is Deductible Proof of Loss Figuring a Gain Other Involuntary ConversionsCondemnation Irrigation Project Livestock Losses Tree Seedlings Postponing GainException. Irs forms 1040nr Related persons. Irs forms 1040nr Replacement Property Replacement Period How To Postpone Gain Disaster Area LossesWho is eligible. Irs forms 1040nr Covered disaster area. Irs forms 1040nr Reporting Gains and Losses Introduction This chapter explains the tax treatment of casualties, thefts, and condemnations. Irs forms 1040nr A casualty occurs when property is damaged, destroyed, or lost due to a sudden, unexpected, or unusual event. Irs forms 1040nr A theft occurs when property is stolen. Irs forms 1040nr A condemnation occurs when private property is legally taken for public use without the owner's consent. Irs forms 1040nr A casualty, theft, or condemnation may result in a deductible loss or taxable gain on your federal income tax return. Irs forms 1040nr You may have a deductible loss or a taxable gain even if only a portion of your property was affected by a casualty, theft, or condemnation. Irs forms 1040nr An involuntary conversion occurs when you receive money or other property as reimbursement for a casualty, theft, condemnation, disposition of property under threat of condemnation, or certain other events discussed in this chapter. Irs forms 1040nr If an involuntary conversion results in a gain and you buy qualified replacement property within the specified replacement period, you can postpone reporting the gain on your income tax return. Irs forms 1040nr For more information, see Postponing Gain , later. Irs forms 1040nr Topics - This chapter discusses: Casualties and thefts How to figure a loss or gain Other involuntary conversions Postponing gain Disaster area losses Reporting gains and losses Drought involving property connected with a trade or business or a transaction entered into for profit Useful Items - You may want to see: Publication 523 Selling Your Home 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 584 Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 584-B Business Casualty, Disaster, and Theft Loss Workbook Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 4684 Casualties and Thefts 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Irs forms 1040nr Casualties and Thefts If your property is destroyed, damaged, or stolen, you may have a deductible loss. Irs forms 1040nr If the insurance or other reimbursement is more than the adjusted basis of the destroyed, damaged, or stolen property, you may have a taxable gain. Irs forms 1040nr Casualty. Irs forms 1040nr   A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Irs forms 1040nr A sudden event is one that is swift, not gradual or progressive. Irs forms 1040nr An unexpected event is one that is ordinarily unanticipated and unintended. Irs forms 1040nr An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged. Irs forms 1040nr Deductible losses. Irs forms 1040nr   Deductible casualty losses can result from a number of different causes, including the following. Irs forms 1040nr Airplane crashes. Irs forms 1040nr Car, truck, or farm equipment accidents not resulting from your willful act or willful negligence. Irs forms 1040nr Earthquakes. Irs forms 1040nr Fires (but see Nondeductible losses next for exceptions). Irs forms 1040nr Floods. Irs forms 1040nr Freezing. Irs forms 1040nr Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses, in Publication 547. Irs forms 1040nr Lightning. Irs forms 1040nr Storms, including hurricanes and tornadoes. Irs forms 1040nr Terrorist attacks. Irs forms 1040nr Vandalism. Irs forms 1040nr Volcanic eruptions. Irs forms 1040nr Nondeductible losses. Irs forms 1040nr   A casualty loss is not deductible if the damage or destruction is caused by the following. Irs forms 1040nr Accidentally breaking articles such as glassware or china under normal conditions. Irs forms 1040nr A family pet (explained below). Irs forms 1040nr A fire if you willfully set it, or pay someone else to set it. Irs forms 1040nr A car, truck, or farm equipment accident if your willful negligence or willful act caused it. Irs forms 1040nr The same is true if the willful act or willful negligence of someone acting for you caused the accident. Irs forms 1040nr Progressive deterioration (explained below). Irs forms 1040nr Family pet. Irs forms 1040nr   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed above under Casualty are met. Irs forms 1040nr Example. Irs forms 1040nr You keep your horse in your yard. Irs forms 1040nr The ornamental fruit trees in your yard were damaged when your horse stripped the bark from them. Irs forms 1040nr Some of the trees were completely girdled and died. Irs forms 1040nr Because the damage was not unexpected or unusual, the loss is not deductible. Irs forms 1040nr Progressive deterioration. Irs forms 1040nr   Loss of property due to progressive deterioration is not deductible as a casualty loss. Irs forms 1040nr This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Irs forms 1040nr Examples of damage due to progressive deterioration include damage from rust, corrosion, or termites. Irs forms 1040nr However, weather-related conditions or disease may cause another type of involuntary conversion. Irs forms 1040nr See Other Involuntary Conversions , later. Irs forms 1040nr Theft. Irs forms 1040nr   A theft is the taking and removing of money or property with the intent to deprive the owner of it. Irs forms 1040nr The taking of property must be illegal under the law of the state where it occurred and it must have been done with criminal intent. Irs forms 1040nr You do not need to show a conviction for theft. Irs forms 1040nr   Theft includes the taking of money or property by the following means: Blackmail, Burglary, Embezzlement, Extortion, Kidnapping for ransom, Larceny, Robbery, or Threats. Irs forms 1040nr The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Irs forms 1040nr Decline in market value of stock. Irs forms 1040nr   You cannot deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. Irs forms 1040nr However, you can deduct as a capital loss the loss you sustain when you sell or exchange the stock or the stock becomes completely worthless. Irs forms 1040nr You report a capital loss on Schedule D (Form 1040). Irs forms 1040nr For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Irs forms 1040nr Mislaid or lost property. Irs forms 1040nr   The simple disappearance of money or property is not a theft. Irs forms 1040nr However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Irs forms 1040nr Example. Irs forms 1040nr A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Irs forms 1040nr The diamond falls from the ring and is never found. Irs forms 1040nr The loss of the diamond is a casualty. Irs forms 1040nr Farming Losses You can deduct certain casualty or theft losses that occur in the business of farming. Irs forms 1040nr The following is a discussion of some losses you can deduct and some you cannot deduct. Irs forms 1040nr Livestock or produce bought for resale. Irs forms 1040nr   Casualty or theft losses of livestock or produce bought for resale are deductible if you report your income on the cash method. Irs forms 1040nr If you report your income on an accrual method, take casualty and theft losses on property bought for resale by omitting the item from the closing inventory for the year of the loss. Irs forms 1040nr You cannot take a separate deduction. Irs forms 1040nr Livestock, plants, produce, and crops raised for sale. Irs forms 1040nr   Losses of livestock, plants, produce, and crops raised for sale are generally not deductible if you report your income on the cash method. Irs forms 1040nr You have already deducted the cost of raising these items as farm expenses, so their basis is equal to zero. Irs forms 1040nr   For plants with a preproductive period of more than 2 years, you may have a deductible loss if you have a tax basis in the plants. Irs forms 1040nr You usually have a tax basis if you capitalized the expenses associated with these plants under the uniform capitalization rules. Irs forms 1040nr The uniform capitalization rules are discussed in chapter 6. Irs forms 1040nr   If you report your income on an accrual method, casualty or theft losses are deductible only if you included the items in your inventory at the beginning of your tax year. Irs forms 1040nr You get the deduction by omitting the item from your inventory at the close of your tax year. Irs forms 1040nr You cannot take a separate casualty or theft deduction. Irs forms 1040nr Income loss. Irs forms 1040nr   A loss of future income is not deductible. Irs forms 1040nr Example. Irs forms 1040nr A severe flood destroyed your crops. Irs forms 1040nr Because you are a cash method taxpayer and already deducted the cost of raising the crops as farm expenses, this loss is not deductible, as explained above under Livestock, plants, produce, and crops raised for sale . Irs forms 1040nr You estimate that the crop loss will reduce your farm income by $25,000. Irs forms 1040nr This loss of future income is also not deductible. Irs forms 1040nr Loss of timber. Irs forms 1040nr   If you sell timber downed as a result of a casualty, treat the proceeds from the sale as a reimbursement. Irs forms 1040nr If you use the proceeds to buy qualified replacement property, you can postpone reporting the gain. Irs forms 1040nr See Postponing Gain , later. Irs forms 1040nr Property used in farming. Irs forms 1040nr   Casualty and theft losses of property used in your farm business usually result in deductible losses. Irs forms 1040nr If a fire or storm destroyed your barn, or you lose by casualty or theft an animal you bought for draft, breeding, dairy, or sport, you may have a deductible loss. Irs forms 1040nr See How To Figure a Loss , later. Irs forms 1040nr Raised draft, breeding, dairy, or sporting animals. Irs forms 1040nr   Generally, losses of raised draft, breeding, dairy, or sporting animals do not result in deductible casualty or theft losses because you have no basis in the animals. Irs forms 1040nr However, you may have a basis in the animal and therefore may be able to claim a deduction if either of the following situations applies to you. Irs forms 1040nr You use inventories to determine your income and you included the animals in your inventory. Irs forms 1040nr You capitalized the expenses associated with the animals under the uniform capitalization rules and therefore have a tax basis in the animals subject to a casualty or theft. Irs forms 1040nr When you include livestock in inventory, its last inventory value is its basis. Irs forms 1040nr When you lose an inventoried animal held for draft, breeding, dairy, or sport by casualty or theft during the year, decrease ending inventory by the amount you included in inventory for the animal. Irs forms 1040nr You cannot take a separate deduction. Irs forms 1040nr How To Figure a Loss How you figure a deductible casualty or theft loss depends on whether the loss was to farm or personal-use property and whether the property was stolen or partly or completely destroyed. Irs forms 1040nr Farm property. Irs forms 1040nr   Farm property is the property you use in your farming business. Irs forms 1040nr If your farm property was completely destroyed or stolen, your loss is figured as follows:      Your adjusted basis in the property     MINUS     Any salvage value     MINUS     Any insurance or other reimbursement you  receive or expect to receive      You can use the schedules in Publication 584-B to list your stolen, damaged, or destroyed business property and to figure your loss. Irs forms 1040nr   If your farm property was partially damaged, use the steps shown under Personal-use property next to figure your casualty loss. Irs forms 1040nr However, the deduction limits, discussed later, do not apply to farm property. Irs forms 1040nr Personal-use property. Irs forms 1040nr   Personal-use property is property used by you or your family members for personal purposes and not used in your farm business or for income-producing purposes. Irs forms 1040nr The following items are examples of personal-use property: Your main home. Irs forms 1040nr Furniture and electronics used in your main home and not used in a home office or for business purposes. Irs forms 1040nr Clothing and jewelry. Irs forms 1040nr An automobile used for nonbusiness purposes. Irs forms 1040nr You figure the casualty or theft loss on this property by taking the following steps. Irs forms 1040nr Determine your adjusted basis in the property before the casualty or theft. Irs forms 1040nr Determine the decrease in fair market value of the property as a result of the casualty or theft. Irs forms 1040nr From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you receive or expect to receive. Irs forms 1040nr You must apply the deduction limits, discussed later, to determine your deductible loss. Irs forms 1040nr    You can use Publication 584 to list your stolen or damaged personal-use property and figure your loss. Irs forms 1040nr It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Irs forms 1040nr Adjusted basis. Irs forms 1040nr   Adjusted basis is your basis (usually cost) increased or decreased by various events, such as improvements and casualty losses. Irs forms 1040nr For more information about adjusted basis, see chapter 6. Irs forms 1040nr Decrease in fair market value (FMV). Irs forms 1040nr   The decrease in FMV is the difference between the property's value immediately before the casualty or theft and its value immediately afterward. Irs forms 1040nr FMV is defined in chapter 10 under Payments Received or Considered Received . Irs forms 1040nr Appraisal. Irs forms 1040nr   To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. Irs forms 1040nr But other measures, such as the cost of cleaning up or making repairs (discussed next) can be used to establish decreases in FMV. Irs forms 1040nr   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. Irs forms 1040nr The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Irs forms 1040nr This information is needed to limit any deduction to the actual loss resulting from damage to the property. Irs forms 1040nr Cost of cleaning up or making repairs. Irs forms 1040nr   The cost of cleaning up after a casualty is not part of a casualty loss. Irs forms 1040nr Neither is the cost of repairing damaged property after a casualty. Irs forms 1040nr But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. Irs forms 1040nr The repairs are actually made. Irs forms 1040nr The repairs are necessary to bring the property back to its condition before the casualty. Irs forms 1040nr The amount spent for repairs is not excessive. Irs forms 1040nr The repairs fix the damage only. Irs forms 1040nr The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Irs forms 1040nr Related expenses. Irs forms 1040nr   The incidental expenses due to a casualty or theft, such as expenses for the treatment of personal injuries, temporary housing, or a rental car, are not part of your casualty or theft loss. Irs forms 1040nr However, they may be deductible as farm business expenses if the damaged or stolen property is farm property. Irs forms 1040nr Separate computations for more than one item of property. Irs forms 1040nr   Generally, if a single casualty or theft involves more than one item of property, you must figure your loss separately for each item of property. Irs forms 1040nr Then combine the losses to determine your total loss. Irs forms 1040nr    There is an exception to this rule for personal-use real property. Irs forms 1040nr See Exception for personal-use real property, later. Irs forms 1040nr Example. Irs forms 1040nr A fire on your farm damaged a tractor and the barn in which it was stored. Irs forms 1040nr The tractor had an adjusted basis of $3,300. Irs forms 1040nr Its FMV was $28,000 just before the fire and $10,000 immediately afterward. Irs forms 1040nr The barn had an adjusted basis of $28,000. Irs forms 1040nr Its FMV was $55,000 just before the fire and $25,000 immediately afterward. Irs forms 1040nr You received insurance reimbursements of $2,100 on the tractor and $26,000 on the barn. Irs forms 1040nr Figure your deductible casualty loss separately for the two items of property. Irs forms 1040nr     Tractor Barn 1) Adjusted basis $3,300 $28,000 2) FMV before fire $28,000 $55,000 3) FMV after fire 10,000 25,000 4) Decrease in FMV  (line 2 − line 3) $18,000 $30,000 5) Loss (lesser of line 1 or line 4) $3,300 $28,000 6) Minus: Insurance 2,100 26,000 7) Deductible casualty loss $1,200 $2,000 8) Total deductible casualty loss $3,200 Exception for personal-use real property. Irs forms 1040nr   In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. Irs forms 1040nr Figure the loss using the smaller of the following. Irs forms 1040nr The decrease in FMV of the entire property. Irs forms 1040nr The adjusted basis of the entire property. Irs forms 1040nr Example. Irs forms 1040nr You bought a farm in 1990 for $160,000. Irs forms 1040nr The adjusted basis of the residential part is now $128,000. Irs forms 1040nr In 2013, a windstorm blew down shade trees and three ornamental trees planted at a cost of $7,500 on the residential part. Irs forms 1040nr The adjusted basis of the residential part includes the $7,500. Irs forms 1040nr The fair market value (FMV) of the residential part immediately before the storm was $400,000, and $385,000 immediately after the storm. Irs forms 1040nr The trees were not covered by insurance. Irs forms 1040nr 1) Adjusted basis $128,000 2) FMV before the storm $400,000 3) FMV after the storm 385,000 4) Decrease in FMV (line 2 − line 3) $15,000 5) Loss before insurance (lesser of line 1 or line 4) $15,000 6) Minus: Insurance -0- 7) Amount of loss $15,000 Insurance and other reimbursements. Irs forms 1040nr   If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Irs forms 1040nr You do not have a casualty or theft loss to the extent you are reimbursed. Irs forms 1040nr   If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Irs forms 1040nr You must reduce your loss even if you do not receive payment until a later tax year. Irs forms 1040nr    Do not subtract from your loss any insurance payments you receive for living expenses if you lose the use of your main home or are denied access to it because of a casualty. Irs forms 1040nr You may have to include a portion of these payments in your income. Irs forms 1040nr See Insurance payments for living expenses in Publication 547 for details. Irs forms 1040nr Disaster relief. Irs forms 1040nr   Food, medical supplies, and other forms of assistance you receive do not reduce your casualty loss, unless they are replacements for lost or destroyed property. Irs forms 1040nr Excludable cash gifts you receive also do not reduce your casualty loss if there are no limits on how you can use the money. Irs forms 1040nr   Generally, disaster relief grants received under the Robert T. Irs forms 1040nr Stafford Disaster Relief and Emergency Assistance Act are not included in your income. Irs forms 1040nr See Federal disaster relief grants , later, under Disaster Area Losses . Irs forms 1040nr   Qualified disaster relief payments for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Irs forms 1040nr See Qualified disaster relief payments , later, under Disaster Area Losses . Irs forms 1040nr Reimbursement received after deducting loss. Irs forms 1040nr   If you figure your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you get your actual reimbursement. Irs forms 1040nr Actual reimbursement less than expected. Irs forms 1040nr   If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement. Irs forms 1040nr Actual reimbursement more than expected. Irs forms 1040nr   If you later receive more reimbursement than you expected after you have claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. Irs forms 1040nr However, if any part of your original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. Irs forms 1040nr Do not refigure your tax for the year you claimed the deduction. Irs forms 1040nr See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. Irs forms 1040nr If the total of all the reimbursements you receive is more than your adjusted basis in the destroyed or stolen property, you will have a gain on the casualty or theft. Irs forms 1040nr See Figuring a Gain in Publication 547 for information on how to treat a gain from the reimbursement you receive because of a casualty or theft. Irs forms 1040nr Actual reimbursement same as expected. Irs forms 1040nr   If you receive exactly the reimbursement you expected to receive, you do not have to include any of the reimbursement in your income and you cannot deduct any additional loss. Irs forms 1040nr Lump-sum reimbursement. Irs forms 1040nr   If you have a casualty or theft loss of several assets at the same time without an allocation of reimbursement to specific assets, divide the lump-sum reimbursement among the assets according to the fair market value of each asset at the time of the loss. Irs forms 1040nr Figure the gain or loss separately for each asset that has a separate basis. Irs forms 1040nr Adjustments to basis. Irs forms 1040nr   If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive and by any deductible loss. Irs forms 1040nr The result is your adjusted basis in the property. Irs forms 1040nr Amounts you spend on repairs to restore your property to its pre-casualty condition increase your adjusted basis. Irs forms 1040nr See Adjusted Basis in chapter 6 for more information. Irs forms 1040nr Example. Irs forms 1040nr You built a new silo for $25,000. Irs forms 1040nr This is the basis in your silo because that is the total cost you incurred to build it. Irs forms 1040nr During the year, a tornado damaged your silo and your allowable casualty loss deduction was $1,000. Irs forms 1040nr In addition, your insurance company reimbursed you $4,000 for the damage and you spent $6,000 to restore the silo to its pre-casualty condition. Irs forms 1040nr Your adjusted basis in the silo after the casualty is $26,000 ($25,000 - $1,000 - $4,000 + $6,000). Irs forms 1040nr Deduction Limits on Losses of Personal-Use Property Casualty and theft losses of property held for personal use may be deductible if you itemize deductions on Schedule A (Form 1040). Irs forms 1040nr There are two limits on the deduction for casualty or theft loss of personal-use property. Irs forms 1040nr You figure these limits on Form 4684. Irs forms 1040nr $100 rule. Irs forms 1040nr   You must reduce each casualty or theft loss on personal-use property by $100. Irs forms 1040nr This rule applies after you have subtracted any reimbursement. Irs forms 1040nr 10% rule. Irs forms 1040nr   You must further reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Irs forms 1040nr Apply this rule after you reduce each loss by $100. Irs forms 1040nr Adjusted gross income is on line 38 of Form 1040. Irs forms 1040nr Example. Irs forms 1040nr In June, you discovered that your house had been burglarized. Irs forms 1040nr Your loss after insurance reimbursement was $2,000. Irs forms 1040nr Your adjusted gross income for the year you discovered the burglary is $57,000. Irs forms 1040nr Figure your theft loss deduction as follows: 1. Irs forms 1040nr Loss after insurance $2,000 2. Irs forms 1040nr Subtract $100 100 3. Irs forms 1040nr Loss after $100 rule $1,900 4. Irs forms 1040nr Subtract 10% (. Irs forms 1040nr 10) × $57,000 AGI $5,700 5. Irs forms 1040nr Theft loss deduction -0- You do not have a theft loss deduction because your loss ($1,900) is less than 10% of your adjusted gross income ($5,700). Irs forms 1040nr    If you have a casualty or theft gain in addition to a loss, you will have to make a special computation before you figure your 10% limit. Irs forms 1040nr See 10% Rule in Publication 547. Irs forms 1040nr When Loss Is Deductible Generally, you can deduct casualty losses that are not reimbursable only in the tax year in which they occur. Irs forms 1040nr You generally can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Irs forms 1040nr However, losses in federally declared disaster areas are subject to different rules. Irs forms 1040nr See Disaster Area Losses , later, for an exception. Irs forms 1040nr If you are not sure whether part of your casualty or theft loss will be reimbursed, do not deduct that part until the tax year when you become reasonably certain that it will not be reimbursed. Irs forms 1040nr Leased property. Irs forms 1040nr   If you lease property from someone else, you can deduct a loss on the property in the year your liability for the loss is fixed. Irs forms 1040nr This is true even if the loss occurred or the liability was paid in a different year. Irs forms 1040nr You are not entitled to a deduction until your liability under the lease can be determined with reasonable accuracy. Irs forms 1040nr Your liability can be determined when a claim for recovery is settled, adjudicated, or abandoned. Irs forms 1040nr Example. Irs forms 1040nr Robert leased a tractor from First Implement, Inc. Irs forms 1040nr , for use in his farm business. Irs forms 1040nr The tractor was destroyed by a tornado in June 2012. Irs forms 1040nr The loss was not insured. Irs forms 1040nr First Implement billed Robert for the fair market value of the tractor on the date of the loss. Irs forms 1040nr Robert disagreed with the bill and refused to pay it. Irs forms 1040nr First Implement later filed suit in court against Robert. Irs forms 1040nr In 2013, Robert and First Implement agreed to settle the suit for $20,000, and the court entered a judgment in favor of First Implement. Irs forms 1040nr Robert paid $20,000 in June 2013. Irs forms 1040nr He can claim the $20,000 as a loss on his 2013 tax return. Irs forms 1040nr Net operating loss (NOL). Irs forms 1040nr   If your deductions, including casualty or theft loss deductions, are more than your income for the year, you may have an NOL. Irs forms 1040nr An NOL can be carried back or carried forward and deducted from income in other years. Irs forms 1040nr See Publication 536 for more information on NOLs. Irs forms 1040nr Proof of Loss To deduct a casualty or theft loss, you must be able to prove that there was a casualty or theft. Irs forms 1040nr You must have records to support the amount you claim for the loss. Irs forms 1040nr Casualty loss proof. Irs forms 1040nr   For a casualty loss, your records should show all the following information. Irs forms 1040nr The type of casualty (car accident, fire, storm, etc. Irs forms 1040nr ) and when it occurred. Irs forms 1040nr That the loss was a direct result of the casualty. Irs forms 1040nr That you were the owner of the property or, if you leased the property from someone else, that you were contractually liable to the owner for the damage. Irs forms 1040nr Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Irs forms 1040nr Theft loss proof. Irs forms 1040nr   For a theft loss, your records should show all the following information. Irs forms 1040nr When you discovered your property was missing. Irs forms 1040nr That your property was stolen. Irs forms 1040nr That you were the owner of the property. Irs forms 1040nr Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Irs forms 1040nr Figuring a Gain A casualty or theft may result in a taxable gain. Irs forms 1040nr If you receive an insurance payment or other reimbursement that is more than your adjusted basis in the destroyed, damaged, or stolen property, you have a gain from the casualty or theft. Irs forms 1040nr You generally report your gain as income in the year you receive the reimbursement. Irs forms 1040nr However, depending on the type of property you receive, you may not have to report your gain. Irs forms 1040nr See Postponing Gain , later. Irs forms 1040nr Your gain is figured as follows: The amount you receive, minus Your adjusted basis in the property at the time of the casualty or theft. Irs forms 1040nr Even if the decrease in FMV of your property is smaller than the adjusted basis of your property, use your adjusted basis to figure the gain. Irs forms 1040nr Amount you receive. Irs forms 1040nr   The amount you receive includes any money plus the value of any property you receive, minus any expenses you have in obtaining reimbursement. Irs forms 1040nr It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. Irs forms 1040nr Example. Irs forms 1040nr A tornado severely damaged your barn. Irs forms 1040nr The adjusted basis of the barn was $25,000. Irs forms 1040nr Your insurance company reimbursed you $40,000 for the damaged barn. Irs forms 1040nr However, you had legal expenses of $2,000 to collect that insurance. Irs forms 1040nr Your insurance minus your expenses to collect the insurance is more than your adjusted basis in the barn, so you have a gain. Irs forms 1040nr 1) Insurance reimbursement $40,000 2) Legal expenses 2,000 3) Amount received  (line 1 − line 2) $38,000 4) Adjusted basis 25,000 5) Gain on casualty (line 3 − line 4) $13,000 Other Involuntary Conversions In addition to casualties and thefts, other events cause involuntary conversions of property. Irs forms 1040nr Some of these are discussed in the following paragraphs. Irs forms 1040nr Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes. Irs forms 1040nr You report the gain or deduct the loss on your tax return for the year you realize it. Irs forms 1040nr However, depending on the type of property you receive, you may not have to report your gain on the involuntary conversion. Irs forms 1040nr See Postponing Gain , later. Irs forms 1040nr Condemnation Condemnation is the process by which private property is legally taken for public use without the owner's consent. Irs forms 1040nr The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take property. Irs forms 1040nr The owner receives a condemnation award (money or property) in exchange for the property taken. Irs forms 1040nr A condemnation is a forced sale, the owner being the seller and the condemning authority being the buyer. Irs forms 1040nr Threat of condemnation. Irs forms 1040nr   Treat the sale of your property under threat of condemnation as a condemnation, provided you have reasonable grounds to believe that your property will be condemned. Irs forms 1040nr Main home condemned. Irs forms 1040nr   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Irs forms 1040nr For information on this exclusion, see Publication 523. Irs forms 1040nr If your gain is more than the amount you can exclude, but you buy replacement property, you may be able to postpone reporting the excess gain. Irs forms 1040nr See Postponing Gain , later. Irs forms 1040nr (You cannot deduct a loss from the condemnation of your main home. Irs forms 1040nr ) More information. Irs forms 1040nr   For information on how to figure the gain or loss on condemned property, see chapter 1 in Publication 544. Irs forms 1040nr Also see Postponing Gain , later, to find out if you can postpone reporting the gain. Irs forms 1040nr Irrigation Project The sale or other disposition of property located within an irrigation project to conform to the acreage limits of federal reclamation laws is an involuntary conversion. Irs forms 1040nr Livestock Losses Diseased livestock. Irs forms 1040nr   If your livestock die from disease, or are destroyed, sold, or exchanged because of disease, even though the disease is not of epidemic proportions, treat these occurrences as involuntary conversions. Irs forms 1040nr If the livestock were raised or purchased for resale, follow the rules for livestock discussed earlier under Farming Losses . Irs forms 1040nr Otherwise, figure the gain or loss from these conversions using the rules discussed under Determining Gain or Loss in chapter 8. Irs forms 1040nr If you replace the livestock, you may be able to postpone reporting the gain. Irs forms 1040nr See Postponing Gain below. Irs forms 1040nr Reporting dispositions of diseased livestock. Irs forms 1040nr   If you choose to postpone reporting gain on the disposition of diseased livestock, you must attach a statement to your return explaining that the livestock were disposed of because of disease. Irs forms 1040nr You must also include other information on this statement. Irs forms 1040nr See How To Postpone Gain , later, under Postponing Gain . Irs forms 1040nr Weather-related sales of livestock. Irs forms 1040nr   If you sell or exchange livestock (other than poultry) held for draft, breeding, or dairy purposes solely because of drought, flood, or other weather-related conditions, treat the sale or exchange as an involuntary conversion. Irs forms 1040nr Only livestock sold in excess of the number you normally would sell under usual business practice, in the absence of weather-related conditions, are considered involuntary conversions. Irs forms 1040nr Figure the gain or loss using the rules discussed under Determining Gain or Loss in chapter 8. Irs forms 1040nr If you replace the livestock, you may be able to postpone reporting the gain. Irs forms 1040nr See Postponing Gain below. Irs forms 1040nr Example. Irs forms 1040nr It is your usual business practice to sell five of your dairy animals during the year. Irs forms 1040nr This year you sold 20 dairy animals because of drought. Irs forms 1040nr The sale of 15 animals is treated as an involuntary conversion. Irs forms 1040nr    If you do not replace the livestock, you may be able to report the gain in the following year's income. Irs forms 1040nr This rule also applies to other livestock (including poultry). Irs forms 1040nr See Sales Caused by Weather-Related Conditions in chapter 3. Irs forms 1040nr Tree Seedlings If, because of an abnormal drought, the failure of planted tree seedlings is greater than normally anticipated, you may have a deductible loss. Irs forms 1040nr Treat the loss as a loss from an involuntary conversion. Irs forms 1040nr The loss equals the previously capitalized reforestation costs you had to duplicate on replanting. Irs forms 1040nr You deduct the loss on the return for the year the seedlings died. Irs forms 1040nr Postponing Gain Do not report a gain if you receive reimbursement in the form of property similar or related in service or use to the destroyed, stolen, or other involuntarily converted property. Irs forms 1040nr Your basis in the new property is generally the same as your adjusted basis in the property it replaces. Irs forms 1040nr You must ordinarily report the gain on your stolen, destroyed, or other involuntarily converted property if you receive money or unlike property as reimbursement. Irs forms 1040nr However, you can choose to postpone reporting the gain if you purchase replacement property similar or related in service or use to your destroyed, stolen, or other involuntarily converted property within a specific replacement period. Irs forms 1040nr If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. Irs forms 1040nr To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. Irs forms 1040nr If the cost of the replacement property is less than the reimbursement, you must include the gain in your income up to the amount of the unspent reimbursement. Irs forms 1040nr Example 1. Irs forms 1040nr In 1985, you constructed a barn to store farm equipment at a cost of $20,000. Irs forms 1040nr In 1987, you added a silo to the barn at a cost of $15,000 to store grain. Irs forms 1040nr In May of this year, the property was worth $100,000. Irs forms 1040nr In June the barn and silo were destroyed by a tornado. Irs forms 1040nr At the time of the tornado, you had an adjusted basis of $0 in the property. Irs forms 1040nr You received $85,000 from the insurance company. Irs forms 1040nr You had a gain of $85,000 ($85,000 – $0). Irs forms 1040nr You spent $80,000 to rebuild the barn and silo. Irs forms 1040nr Since this is less than the insurance proceeds received, you must include $5,000 ($85,000 – $80,000) in your income. Irs forms 1040nr Example 2. Irs forms 1040nr In 1970, you bought a cabin in the mountains for your personal use at a cost of $18,000. Irs forms 1040nr You made no further improvements or additions to it. Irs forms 1040nr When a storm destroyed the cabin this January, the cabin was worth $250,000. Irs forms 1040nr You received $146,000 from the insurance company in March. Irs forms 1040nr You had a gain of $128,000 ($146,000 − $18,000). Irs forms 1040nr You spent $144,000 to rebuild the cabin. Irs forms 1040nr Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. Irs forms 1040nr Buying replacement property from a related person. Irs forms 1040nr   You cannot postpone reporting a gain from a casualty, theft, or other involuntary conversion if you buy the replacement property from a related person (discussed later). Irs forms 1040nr This rule applies to the following taxpayers. Irs forms 1040nr C corporations. Irs forms 1040nr Partnerships in which more than 50% of the capital or profits interest is owned by C corporations. Irs forms 1040nr Individuals, partnerships (other than those in (2) above), and S corporations if the total realized gain for the tax year on all involuntarily converted properties on which there are realized gains is more than $100,000. Irs forms 1040nr For involuntary conversions described in (3) above, gains cannot be offset by any losses when determining whether the total gain is more than $100,000. Irs forms 1040nr If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Irs forms 1040nr If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Irs forms 1040nr Exception. Irs forms 1040nr   This rule does not apply if the related person acquired the property from an unrelated person within the period of time allowed for replacing the involuntarily converted property. Irs forms 1040nr Related persons. Irs forms 1040nr   Under this rule, related persons include, for example, a parent and child, a brother and sister, a corporation and an individual who owns more than 50% of its outstanding stock, and two partnerships in which the same C corporations own more than 50% of the capital or profits interests. Irs forms 1040nr For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Irs forms 1040nr Death of a taxpayer. Irs forms 1040nr   If a taxpayer dies after having a gain, but before buying replacement property, the gain must be reported for the year in which the decedent realized the gain. Irs forms 1040nr The executor of the estate or the person succeeding to the funds from the involuntary conversion cannot postpone reporting the gain by buying replacement property. Irs forms 1040nr Replacement Property You must buy replacement property for the specific purpose of replacing your property. Irs forms 1040nr Your replacement property must be similar or related in service or use to the property it replaces. Irs forms 1040nr You do not have to use the same funds you receive as reimbursement for your old property to acquire the replacement property. Irs forms 1040nr If you spend the money you receive for other purposes, and borrow money to buy replacement property, you can still choose to postpone reporting the gain if you meet the other requirements. Irs forms 1040nr Property you acquire by gift or inheritance does not qualify as replacement property. Irs forms 1040nr Owner-user. Irs forms 1040nr   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Irs forms 1040nr Examples of property that functions in the same way as the property it replaces are a home that replaces another home, a dairy cow that replaces another dairy cow, and farm land that replaces other farm land. Irs forms 1040nr A grinding mill that replaces a tractor does not qualify. Irs forms 1040nr Neither does a breeding or draft animal that replaces a dairy cow. Irs forms 1040nr Soil or other environmental contamination. Irs forms 1040nr   If, because of soil or other environmental contamination, it is not feasible for you to reinvest your insurance money or other proceeds from destroyed or damaged livestock in property similar or related in service or use to the livestock, you can treat other property (including real property) used for farming purposes, as property similar or related in service or use to the destroyed or damaged livestock. Irs forms 1040nr Weather-related conditions. Irs forms 1040nr   If, because of drought, flood, or other weather-related conditions, it is not feasible for you to reinvest the insurance money or other proceeds in property similar or related in service or use to the livestock, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the livestock you disposed of. Irs forms 1040nr Example. Irs forms 1040nr Each year you normally sell 25 cows from your beef herd. Irs forms 1040nr However, this year you had to sell 50 cows. Irs forms 1040nr This is because a severe drought significantly reduced the amount of hay and pasture yield needed to feed your herd for the rest of the year. Irs forms 1040nr Because, as a result of the severe drought, it is not feasible for you to use the proceeds from selling the extra cows to buy new cows, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the cows you sold. Irs forms 1040nr Standing crop destroyed by casualty. Irs forms 1040nr   If a storm or other casualty destroyed your standing crop and you use the insurance money to acquire either another standing crop or a harvested crop, this purchase qualifies as replacement property. Irs forms 1040nr The costs of planting and raising a new crop qualify as replacement costs for the destroyed crop only if you use the crop method of accounting (discussed in chapter 2). Irs forms 1040nr In that case, the costs of bringing the new crop to the same level of maturity as the destroyed crop qualify as replacement costs to the extent they are incurred during the replacement period. Irs forms 1040nr Timber loss. Irs forms 1040nr   Standing timber you bought with the proceeds from the sale of timber downed as a result of a casualty, such as high winds, earthquakes, or volcanic eruptions, qualifies as replacement property. Irs forms 1040nr If you bought the standing timber within the replacement period, you can postpone reporting the gain. Irs forms 1040nr Business or income-producing property located in a federally declared disaster area. Irs forms 1040nr   If your destroyed business or income-producing property was located in a federally declared disaster area, any tangible replacement property you acquire for use in any business is treated as similar or related in service or use to the destroyed property. Irs forms 1040nr For more information, see Disaster Area Losses in Publication 547. Irs forms 1040nr Substituting replacement property. Irs forms 1040nr   Once you have acquired qualified replacement property that you designate as replacement property in a statement attached to your tax return, you cannot substitute other qualified replacement property. Irs forms 1040nr This is true even if you acquire the other property within the replacement period. Irs forms 1040nr However, if you discover that the original replacement property was not qualified replacement property, you can, within the replacement period, substitute the new qualified replacement property. Irs forms 1040nr Basis of replacement property. Irs forms 1040nr   You must reduce the basis of your replacement property (its cost) by the amount of postponed gain. Irs forms 1040nr In this way, tax on the gain is postponed until you dispose of the replacement property. Irs forms 1040nr Replacement Period To postpone reporting your gain, you must buy replacement property within a specified period of time. Irs forms 1040nr This is the replacement period. Irs forms 1040nr The replacement period begins on the date your property was damaged, destroyed, stolen, sold, or exchanged. Irs forms 1040nr The replacement period generally ends 2 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. Irs forms 1040nr Example. Irs forms 1040nr You are a calendar year taxpayer. Irs forms 1040nr While you were on vacation, farm equipment that cost $2,200 was stolen from your farm. Irs forms 1040nr You discovered the theft when you returned to your farm on November 11, 2012. Irs forms 1040nr Your insurance company investigated the theft and did not settle your claim until January 5, 2013, when they paid you $3,000. Irs forms 1040nr You first realized a gain from the reimbursement for the theft during 2013, so you have until December 31, 2015, to replace the property. Irs forms 1040nr Main home in disaster area. Irs forms 1040nr   For your main home (or its contents) located in a federally declared disaster area, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. Irs forms 1040nr See Disaster Area Losses , later. Irs forms 1040nr Property in the Midwestern disaster areas. Irs forms 1040nr   For property located in the Midwestern disaster areas (defined in Table 4 in the 2008 Publication 547) that was destroyed, damaged, stolen, or condemned, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Irs forms 1040nr This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Midwestern disaster areas. Irs forms 1040nr Property in the Kansas disaster area. Irs forms 1040nr   For property located in the Kansas disaster area that was destroyed, damaged, stolen, or condemned after May 3, 2007, as a result of the Kansas storms and tornadoes, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Irs forms 1040nr This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Kansas disaster area. Irs forms 1040nr Property in the Hurricane Katrina disaster area. Irs forms 1040nr   For property located in the Hurricane Katrina disaster area that was destroyed, damaged, stolen, or condemned after August 24, 2005, as a result of Hurricane Katrina, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Irs forms 1040nr This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Irs forms 1040nr Weather-related sales of livestock in an area eligible for federal assistance. Irs forms 1040nr   For the sale or exchange of livestock due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Irs forms 1040nr The IRS may extend the replacement period on a regional basis if the weather-related conditions continue for longer than 3 years. Irs forms 1040nr   For information on extensions of the replacement period because of persistent drought, see Notice 2006-82, 2006-39 I. Irs forms 1040nr R. Irs forms 1040nr B. Irs forms 1040nr 529, available at  www. Irs forms 1040nr irs. Irs forms 1040nr gov/irb/2006-39_IRB/ar11. Irs forms 1040nr html. Irs forms 1040nr For a list of counties for which exceptional, extreme, or severe drought was reported during the 12 months ending August 31, 2013, see Notice 2013-62, available at IRS. Irs forms 1040nr gov. Irs forms 1040nr Condemnation. Irs forms 1040nr   The replacement period for a condemnation begins on the earlier of the following dates. Irs forms 1040nr The date on which you disposed of the condemned property. Irs forms 1040nr The date on which the threat of condemnation began. Irs forms 1040nr The replacement period generally ends 2 years after the close of the first tax year in which any part of the gain on the condemnation is realized. Irs forms 1040nr But see Main home in disaster area , Property in the Midwestern disaster areas , Property in the Kansas disaster area , and Property in the Hurricane Katrina disaster area , earlier, for exceptions. Irs forms 1040nr Business or investment real property. Irs forms 1040nr   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the close of the first tax year in which any part of the gain on the condemnation is realized. Irs forms 1040nr Extension. Irs forms 1040nr   You can apply for an extension of the replacement period. Irs forms 1040nr Send your written application to the Internal Revenue Service Center where you file your tax return. Irs forms 1040nr See your tax return instructions for the address. Irs forms 1040nr Include all the details about your need for an extension. Irs forms 1040nr Make your application before the end of the replacement period. Irs forms 1040nr However, you can file an application within a reasonable time after the replacement period ends if you can show a good reason for the delay. Irs forms 1040nr You will get an extension of the replacement period if you can show reasonable cause for not making the replacement within the regular period. Irs forms 1040nr How To Postpone Gain You postpone reporting your gain by reporting your choice on your tax return for the year you have the gain. Irs forms 1040nr You have the gain in the year you receive insurance proceeds or other reimbursements that result in a gain. Irs forms 1040nr Required statement. Irs forms 1040nr   You should attach a statement to your return for the year you have the gain. Irs forms 1040nr This statement should include all the following information. Irs forms 1040nr The date and details of the casualty, theft, or other involuntary conversion. Irs forms 1040nr The insurance or other reimbursement you received. Irs forms 1040nr How you figured the gain. Irs forms 1040nr Replacement property acquired before return filed. Irs forms 1040nr   If you acquire replacement property before you file your return for the year you have the gain, your statement should also include detailed information about all the following items. Irs forms 1040nr The replacement property. Irs forms 1040nr The postponed gain. Irs forms 1040nr The basis adjustment that reflects the postponed gain. Irs forms 1040nr Any gain you are reporting as income. Irs forms 1040nr Replacement property acquired after return filed. Irs forms 1040nr   If you intend to buy replacement property after you file your return for the year you realize gain, your statement should also say that you are choosing to replace the property within the required replacement period. Irs forms 1040nr   You should then attach another statement to your return for the year in which you buy the replacement property. Irs forms 1040nr This statement should contain detailed information on the replacement property. Irs forms 1040nr If you acquire part of your replacement property in one year and part in another year, you must attach a statement to each year's return. Irs forms 1040nr Include in the statement detailed information on the replacement property bought in that year. Irs forms 1040nr Reporting weather-related sales of livestock. Irs forms 1040nr   If you choose to postpone reporting the gain on weather-related sales or exchanges of livestock, show all the following information on a statement attached to your return for the tax year in which you first realize any of the gain. Irs forms 1040nr Evidence of the weather-related conditions that forced the sale or exchange of the livestock. Irs forms 1040nr The gain realized on the sale or exchange. Irs forms 1040nr The number and kind of livestock sold or exchanged. Irs forms 1040nr The number of livestock of each kind you would have sold or exchanged under your usual business practice. Irs forms 1040nr   Show all the following information and the preceding information on the return for the year in which you replace the livestock. Irs forms 1040nr The dates you bought the replacement property. Irs forms 1040nr The cost of the replacement property. Irs forms 1040nr Description of the replacement property (for example, the number and kind of the replacement livestock). Irs forms 1040nr Amended return. Irs forms 1040nr   You must file an amended return (Form 1040X) for the tax year of the gain in either of the following situations. Irs forms 1040nr You do not acquire replacement property within the replacement period, plus extensions. Irs forms 1040nr On this amended return, you must report the gain and pay any additional tax due. Irs forms 1040nr You acquire replacement property within the required replacement period, plus extensions, but at a cost less than the amount you receive from the casualty, theft, or other involuntary conversion. Irs forms 1040nr On this amended return, you must report the part of the gain that cannot be postponed and pay any additional tax due. Irs forms 1040nr Disaster Area Losses Special rules apply to federally declared disaster area losses. Irs forms 1040nr A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Robert T. Irs forms 1040nr Stafford Disaster Relief and Emergency Assistance Act. Irs forms 1040nr It includes a major disaster or emergency declaration under the act. Irs forms 1040nr A list of the areas warranting public or individual assistance (or both) under the Act is available at the Federal Emergency Management Agency (FEMA) web site at www. Irs forms 1040nr fema. Irs forms 1040nr gov. Irs forms 1040nr This part discusses the special rules for when to deduct a disaster area loss and what tax deadlines may be postponed. Irs forms 1040nr For other special rules, see Disaster Area Losses in Publication 547. Irs forms 1040nr When to deduct the loss. Irs forms 1040nr   You generally must deduct a casualty loss in the year it occurred. Irs forms 1040nr However, if you have a deductible loss from a disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct that loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened. Irs forms 1040nr If you make this choice, the loss is treated as having occurred in the preceding year. Irs forms 1040nr    Claiming a qualifying disaster loss on the previous year's return may result in a lower tax for that year, often producing or increasing a cash refund. Irs forms 1040nr   You must make the choice to take your casualty loss for the disaster in the preceding year by the later of the following dates. Irs forms 1040nr The due date (without extensions) for filing your tax return for the tax year in which the disaster actually occurred. Irs forms 1040nr The due date (with extensions) for the return for the preceding tax year. Irs forms 1040nr Federal disaster relief grants. Irs forms 1040nr   Do not include post-disaster relief grants received under the Robert T. Irs forms 1040nr Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses. Irs forms 1040nr Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. Irs forms 1040nr If the casualty loss was specifically reimbursed by the grant and you received the grant after the year in which you deducted the casualty loss, see Reimbursement received after deducting loss , earlier. Irs forms 1040nr Unemployment assistance payments under the Act are taxable unemployment compensation. Irs forms 1040nr Qualified disaster relief payments. Irs forms 1040nr   Qualified disaster relief payments are not included in the income of individuals to the extent any expenses compensated by these payments are not otherwise compensated for by insurance or other reimbursement. Irs forms 1040nr These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). Irs forms 1040nr No withholding applies to these payments. Irs forms 1040nr   Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses. Irs forms 1040nr Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster. Irs forms 1040nr Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. Irs forms 1040nr (A personal residence can be a rented residence or one you own. Irs forms 1040nr ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster. Irs forms 1040nr   Qualified disaster relief payments include amounts paid by a federal, state, or local government in connection with a federally declared disaster to individuals affected by the disaster. Irs forms 1040nr    Qualified disaster relief payments do not include: Payments for expenses otherwise paid for by insurance or other reimbursements, or Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation. Irs forms 1040nr Qualified disaster mitigation payments. Irs forms 1040nr   Qualified disaster mitigation payments made under the Robert T. Irs forms 1040nr Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not included in income. Irs forms 1040nr These are payments you, as a property owner, receive to reduce the risk of future damage to your property. Irs forms 1040nr You cannot increase your basis in property, or take a deduction or credit, for expenditures made with respect to those payments. Irs forms 1040nr Sale of property under hazard mitigation program. Irs forms 1040nr   Generally, if you sell or otherwise transfer property, you must recognize any gain or loss for tax purposes unless the property is your main home. Irs forms 1040nr You report the gain or deduct the loss on your tax return for the year you realize it. Irs forms 1040nr (You cannot deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier. Irs forms 1040nr ) However, if you sell or otherwise transfer property to the Federal Government, a state or local government, or an Indian tribal government under a hazard mitigation program, you can choose to postpone reporting the gain if you buy qualifying replacement property within a certain period of time. Irs forms 1040nr See Postponing Gain , earlier, for the rules that apply. Irs forms 1040nr Other federal assistance programs. Irs forms 1040nr    For more information about other federal assistance programs, see Crop Insurance and Crop Disaster Payments and Feed Assistance and Payments in chapter 3 earlier. Irs forms 1040nr Postponed tax deadlines. Irs forms 1040nr   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Irs forms 1040nr The tax deadlines the IRS may postpone include those for filing income, excise, and employment tax returns, paying income, excise, and employment taxes, and making contributions to a traditional IRA or Roth IRA. Irs forms 1040nr   If any tax deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Irs forms 1040nr Go to http://www. Irs forms 1040nr irs. Irs forms 1040nr gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Irs forms 1040nr Who is eligible. Irs forms 1040nr   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Irs forms 1040nr Any individual whose main home is located in a covered disaster area (defined next). Irs forms 1040nr Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Irs forms 1040nr Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area. Irs forms 1040nr Any individual, business entity, or sole proprietorship whose records are needed to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Irs forms 1040nr The main home or principal place of business does not have to be located in the covered disaster area. Irs forms 1040nr Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Irs forms 1040nr The spouse on a joint return with a taxpayer who is eligible for postponements. Irs forms 1040nr Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose necessary records to meet a postponed tax deadline are located in the covered disaster area. Irs forms 1040nr Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Irs forms 1040nr Any other person determined by the IRS to be affected by a federally declared disaster. Irs forms 1040nr Covered disaster area. Irs forms 1040nr   This is an area of a federally declared disaster area in which the IRS has decided to postpone tax deadlines for up to 1 year. Irs forms 1040nr Abatement of interest and penalties. Irs forms 1040nr   The IRS may abate the interest and penalties on the underpaid income tax for the length of any postponement of tax deadlines. Irs forms 1040nr Reporting Gains and Losses You will have to file one or more of the following forms to report your gains or losses from involuntary conversions. Irs forms 1040nr Form 4684. Irs forms 1040nr   Use this form to report your gains and losses from casualties and thefts. Irs forms 1040nr Form 4797. Irs forms 1040nr   Use this form to report involuntary conversions (other than from casualty or theft) of property used in your trade or business and capital assets held in connection with a trade or business or a transaction entered into for profit. Irs forms 1040nr Also use this form if you have a gain from a casualty or theft on trade, business or income-producing property held for more than 1 year and you have to recapture some or all of your gain as ordinary income. Irs forms 1040nr Form 8949. Irs forms 1040nr   Use this form to report gain from an involuntary conversion (other than from casualty or theft) of personal-use property. Irs forms 1040nr Schedule A (Form 1040). Irs forms 1040nr   Use this form to deduct your losses from casualties and thefts of personal-use property and income-producing property, that you reported on Form 4684. Irs forms 1040nr Schedule D (Form 1040). Irs forms 1040nr   Use this form to carry over the following gains. Irs forms 1040nr Net gain shown on Form 4797 from an involuntary conversion of business property held for more than 1 year. Irs forms 1040nr Net gain shown on Form 4684 from the casualty or theft of personal-use property. Irs forms 1040nr    Also use this form to figure the overall gain or loss from transactions reported on Form 8949. Irs forms 1040nr Schedule F (Form 1040). Irs forms 1040nr   Use this form to deduct your losses from casualty or theft of livestock or produce bought for sale under Other expenses in Part II, line 32, if you use the cash method of accounting and have not otherwise deducted these losses. Irs forms 1040nr Prev  Up  Next   Home   More Online Publications
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Frequently Asked Questions: Do I Need a PTIN?

a. General Guidance

b. PTIN Scenarios

c. Supervised, Non-Signing, and Non-1040 Preparers

d. SSN Requirements for Obtaining a PTIN


a. General Guidance


1. Who needs a Preparer Tax Identification Number (PTIN)? (revised 2/22/12)

A PTIN must be obtained by all enrolled agents, as well as all tax return preparers who are compensated for preparing, or assisting in the preparation of, all or substantially all of any U.S. federal tax return, claim for refund, or other tax form submitted to the IRS except the following:

Form SS-4, Application for Employer Identification Number;
Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding;
Form SS-16, Certificate of Election of Coverage under FICA;
Form W-2 series of returns;
Form W-7, Application for IRS Individual Taxpayer Identification Number;
Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding;
Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment;
Form 872, Consent to Extend the Time to Assess Tax;
Form 906, Closing Agreement On Final Determination Covering Specific Matters;
Form 1098 series;
Form 1099 series;
Form 2848, Power of Attorney and Declaration of Representative;
Form 3115, Application for Change in Accounting Method;
Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits;
Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners;
Form 4419, Application for Filing Information Returns Electronically;
Form 5300, Application for Determination for Employee Benefit Plan;
Form 5307, Application for Determination for Adopters of Master or Prototype or Volume Submitter Plans;
Form 5310, Application for Determination for Terminating Plan;
Form 5500 series;
Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips;
Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests;
Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests;
Form 8508, Request for Waiver From Filing Information Returns Electronically;
Form 8717, User Fee for Employee Plan Determination, Opinion, and Advisory Letter Request;
Form 8809, Application for Extension of Time to File Information Return;
Form 8821, Tax Information Authorization;
Form 8942, Application for Certification of Qualified Investments Eligible for Credits and Grants Under the Qualifying Therapeutic Discovery Project Program

Refer to the scenarios for additional guidance.

2. Are individuals who are active attorneys and certified public accountants required to obtain a PTIN if they do not prepare all or substantially all of any tax return? (revised 2/22/12)

Attorneys and certified public accountants do not need to obtain a PTIN unless they prepare for compensation all or substantially all of a federal tax return or claim for refund.

3. Are enrolled retirement plan agents required to obtain a PTIN? (posted 11/4/11)

Enrolled Retirement Plan Agents are only required to obtain a PTIN if they prepare or assist in the preparation of all or substantially all of any tax return or claim for refund that is not on the list of forms exempt from the PTIN requirement. ERPAs that prepare only Form 5300 or 5500 series returns are not required to obtain a PTIN. See Notice 2011-91 for more information.

4. Can multiple individuals or one office share one PTIN? (revised 6/9/11)

No, every individual who, for compensation, prepares or assists in the preparation of a tax return or claim for refund must have his or her own PTIN and each tax return preparer may only obtain one PTIN.

5. If I don't have a PTIN, can I still prepare tax returns for compensation? (revised 10/10/13)

No. You must have a PTIN to prepare tax returns for compensation. 

6. Is there an age requirement for obtaining a PTIN? (posted 9/30/10)

Yes, applicants must be at least 18 years of age.

7. What penalties can be imposed against tax return preparers who don't have a current PTIN? (revised 2/22/12)

Failure to have a current PTIN could result in the imposition of Internal Revenue Code section 6695 penalties, injunction, and/or disciplinary action by the IRS Office of Professional Responsibility.

8. What is the difference between a PTIN and an EFIN? Does a preparer need both? (revised 2/22/12)

A Preparer Tax Identification Number (PTIN) is a number issued by the IRS to paid tax return preparers. It is used as the tax return preparer’s identification number and, when applicable, must be placed in the Paid Preparer section of a tax return that the tax return preparer prepared for compensation. There is an initial fee of $64.25 and an annual renewal fee of $63.00.

An Electronic Filing Identification Number (EFIN) is a number issued by the IRS to individuals or firms that have been approved as authorized IRS e-file providers.  It is included with all electronic return data transmitted to the IRS.  There is no fee for an EFIN.

Preparer Tax Identification Numbers are issued to individuals.  Electronic Filing Identification Numbers are issued to individuals or firms.  Most preparers need both.

9. If an employee of a business prepares the business’ tax returns as part of their job responsibilities, do they need to obtain a PTIN? (revised 9/28/10)

No. An employee who prepares his employer’s federal tax returns is not required to sign as a paid preparer. Accordingly, unless the employee prepares other federal tax returns for compensation, he or she is not required to register and obtain a PTIN.

10. Are e-file transmitters or intermediate service providers that do not prepare returns subject to the PTIN requirements? (revised 9/28/10)

No. E-file providers that assist in the formatting and transmission of tax returns electronically, but do not prepare all or substantially all of a federal tax return or claim for refund for compensation, are not required to obtain a PTIN.

11. Will the IRS share my PTIN application information with other people? (revised 4/19/12)

The law allows vendors and others to obtain the PTIN holder listing. PTIN holders are not allowed to opt out of the disclosure of their contact information because Freedom of Information Act (FOIA) laws make the information public. If you receive unwanted email solicitations due to this required disclosure, the Federal Trade Commission, Bureau of Consumer Protection can best advise you whether an email violates the CAN-SPAM Act of 2003 and how to report violations.

You should also review the PTIN application Privacy Policy.

In order to maintain privacy PTIN holders may want to review and/or update contact information


b. PTIN Scenarios


1. I am a tax return preparer, and I have a PTIN.  My firm employs a bookkeeper.  She gathers client receipts and invoices, and organizes and records all information for me.  Although I use the information that our bookkeeper has compiled, I prepare my clients’ tax returns and make all substantive determinations that go into computing the tax liability.  Does my bookkeeper need to have a PTIN? (posted 9/28/10)

No, she is not a tax return preparer, and is not required to have a PTIN.

2. I am a tax return preparer, and I have a PTIN.  Every tax filing season I hire two paid interns from the accounting program at a local college to help me during the busy season.  The interns perform data entry from the tax organizer that my clients fill out, and assemble the documentation that the clients have submitted.  Where clients have submitted incomplete information, or more information is needed, the interns may call clients to gather information missing from the tax organizer, but they are not allowed to provide advice or answer tax law questions.  I prepare and sign all my clients’ returns.  Do my interns need to have a PTIN?  (posted 9/28/10)

No, the interns are not tax return preparers, and are not required to have a PTIN.

3. Same facts as above, but in order to help my interns get exposure to the tax system, I allow them to work with clients who have very simple tax situations, and prepare the Form 1040-EZ.  I review the forms carefully, and sign them.  Are my interns required to have PTINs? (posted 9/28/10)

Yes, the interns are tax return preparers and are required to have a PTIN, whether or not they sign the returns.

4. I am a tax return preparer, and I have a PTIN.  I have an administrative assistant in the office who also performs data entry during tax filing season.  At times, clients call and provide him with information, which he records in the system.  Using the data he has entered, I meet with my clients and provide advice as needed.   I then prepare and sign their returns.  Is my administrative assistant required to have a PTIN? posted 9/28/10)

No, the administrative assistant is not a tax return preparer, and is not required to have a PTIN.

5. I am a retired tax professional, and I volunteer during the tax filing season.  I volunteer at a VITA site, where I prepare individual tax returns for lower-income individuals for no compensation.  Do I need to have a PTIN? (revised 10/10/13)

No, you are not required to have a PTIN.

6. I run a small tax return preparation business that is heavily software-based.  I employ four associates who sit with taxpayers and walk through a step-by-step software program that uses an “interview” process that results in a draft tax return.  I check and sign the returns, and I have a PTIN.  Do my four associates need to have a PTIN? (posted 9/28/10)

You will need to perform additional analysis to determine whether your four associates must have a PTIN.  The answer depends on the specific circumstances of your firm.  In general, if individuals prepare, or assist in preparing, all or substantially all of a tax return, including making determinations that affect tax liability, they must have a PTIN.

7. I am a reporting agent who prepares Forms 94X series returns for my clients for compensation.  I do not exercise any discretion or independent judgment on my client's underlying tax positions and I do not render tax advice to any of my clients.  Do I need a PTIN?  (revised 1/3/11)

No.  The PTIN regulations incorporate the carve-out from the definition of tax return preparer in Treasury Regulation section 301.7701–15(f) for individuals who provide only typing, reproduction, or other mechanical assistance in the preparation of a return or claim for refund.  Example one under Treasury Regulation section 301.7701-15(f)(6) provides that reporting agents who do not exercise any discretion or independent judgment on the client's underlying tax positions and who do not render tax advice to any clients are carved-out under this exception and, therefore, are not tax return preparers.

8. I am a reporting agent who prepares Forms 94X series returns for my clients for compensation.  On occasion, my clients ask me for assistance with issues such as determining whether their workers are employees or independent contractors for federal tax purposes.  Do I need a PTIN? (revised 1/3/11)

Yes.  The PTIN regulations require all tax return preparers who are compensated for preparing, or assisting in the preparation of, all or substantially all of a tax return or claim for refund of tax to register and obtain a PTIN.  The carve-out from the definition of tax return preparer for individuals who provide only typing, reproduction, or other mechanical assistance in the preparation of a return or claim for refund does not apply to reporting agents who render tax advice to any client (example two under Treasury Regulation section 301.7701-15(f)(6)).

9. I am a retirement plan administrator who prepares Forms 5500 and the accompanying schedules for my clients. I also prepare Forms 8955-SSA and Form 5558 for my clients. While the Form 5500 series returns are included in the list of forms exempted from the PTIN requirements in Notice 2011-6, the Forms 8955-SSA and Forms 5558 are not included in that list. Am I required to obtain a PTIN? (posted 3/4/11)

No. The Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Participants, and Form 5558, Application for Extension of Time to File Certain Employee Plan Returns, are, for purposes of Notice 2011-6, part of the "Form 5500 series" of tax returns inasmuch as these forms are prepared either in conjunction with the filing of a retirement plan's Form 5500 filing or to request an extension of time to file a Form 5500 series tax return.

10. Is an attorney or a certified public accountant required to obtain a PTIN if the attorney or certified public accountant only advises a client regarding an issue that is reflected on a claim for refund? (posted 3/4/11)

An attorney or certified public accountant is required to obtain a PTIN if the attorney or certified public accountant prepares, or assists in preparing, all or substantially all of a return or claim for refund. Under the authority of section 1.6109-2(h), however, an attorney or certified public accountant will not be required to obtain a PTIN if the attorney or certified public accountant only advises a client regarding an issue that is reflected on a claim for refund and neither the attorney or certified public accountant nor any person in the firm of the attorney or certified public accountant signs or is required to sign the claim for refund under Treasury Regulation sections 301.7701-15(b)(1) and 1.6695-1(b). The attorney or certified public accountant in question is still a nonsigning tax return preparer subject to penalty under section 6694 if the attorney or certified public accountant has prepared all or a substantial portion of the claim for refund within the meaning of Treasury Regulation section 301.7701-15(b)(3).

11. Our company prepares Forms 2290 for our clients.  It is the only federal tax form we prepare.  Are our employees subject to any of the new regulations? (revised 2/7/13)

Yes, any individual who receives compensation for preparing Forms 2290 is required to register with the IRS and obtain a PTIN.

12. If someone only prepares or assists with preparing Form 1023 for compensation, should they obtain a PTIN? (posted 3/7/12)
 
Generally yes.  More information about PTIN requirements for preparers of exempt organization forms is available here


c. Supervised, Non-Signing, and Non-1040 Preparers


1.  What is a supervised preparer?  Do supervised preparers need a PTIN? (revised 2/7/13)

A supervised preparer is a non-signing preparer who is employed by a law firm, CPA firm or other recognized firm (a firm that is at least 80 percent owned by attorneys, CPAs, or enrolled agents).  The returns they prepare are signed by a supervising attorney, CPA or enrolled agent at the firm. 

A supervised preparer does need a PTIN and must provide their supervisor’s PTIN on their PTIN application or renewal.

Additional guidance on supervised preparers is available in Notice 2011-6 (or view the Fact Sheet).

2. I own a tax preparation business and I review and sign all the returns my employees prepare.  Do they need PTINs?  (revised 2/7/13)

Yes.  Anyone you hire to prepare tax returns needs a PTIN regardless of whether you review and sign the returns.

3. What are the requirements for people who prepare returns other than the Form 1040 series? (revised 2/7/13)

Non-1040 preparers generally need a PTIN.  For exemptions to the PTIN requirement, see FAQ 1 at the top of this page under General Guidance

4. When multiple paid preparers are involved in preparation and/or review of a return, who is required to sign the return?  (posted 8/11/10)

Existing Treasury regulations under sections 1.6695-1(b) and 301.7701-15(b)(1) provide that a signing tax return preparer is the individual tax return preparer who has the primary responsibility for the overall accuracy of the preparation of a return.  The PTIN requirements, which require all preparers to register and obtain a PTIN, do not change the existing rules regarding who is the signing tax return preparer.

5. Are non-signing preparers disclosed on each return prepared even if another preparer reviews and signs it? (revised 2/7/13)

No, the names of non-signing preparers are not disclosed on the return.  Although there is no plan to expand the paid preparer section of the return to include non-signing preparers, they still are required to have a PTIN.

6. If I don't prepare any Form 1040 returns but prepare returns that flow-through to Forms 1040 such as Schedules K-1 for Forms 1065 or 1120S, how do I answer the question, &quotDo you prepare Form 1040 series tax returns?&quot (posted 10/12/11)
 
You should answer &quotno&quot.


d. SSN Requirements for Obtaining a PTIN


1. Is a social security number required to obtain a PTIN? (revised 4/13/11)

Individuals generally are required to provide their social security numbers when they obtain a PTIN.  However, U.S. citizens who have a conscientious objection to obtaining a social security number for religious reasons and foreign persons who are not eligible to obtain a social security number and have a permanent non-U.S. address may obtain a PTIN without a social security number.  These individuals are required to provide supplemental documentation to verify their identity and substantiate their eligibility for a PTIN under these specific exceptions.  See questions 2 and 3 below or Revenue Procedure 2010-41 for additional guidance.

Individuals who have an Individual Taxpayer Identification Number (ITIN) are not eligible for a PTIN unless they are foreign persons with a permanent non-U.S. address, and can provide documentation to support that status.

2. How do U.S. citizens without a social security number due to a conscientious objection for religious reasons obtain a PTIN? (updated 3/21/14)

U.S. citizens who have a conscientious objection to obtaining a social security number for religious reasons must complete Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application, either online or on paper, and a paper Form 8945, PTIN Supplemental Application For U.S. Citizens Without a Social Security Number Due To Conscientious Religious Objection.

Documentation to substantiate identity, U.S. citizenship, and status as a member of a recognized religious group must accompany the Form 8945.  Documentation requirements and mailing information are included in the Form 8945 instructions. Allow 4-6 weeks to process your PTIN application.

3. How do foreign preparers without a social security number obtain a PTIN? (updated 3/21/14)

A foreign preparer who does not have and is not eligible to obtain a social security number and is neither a citizen of the U.S. nor a resident alien of the U.S. as defined in section 7701(b)(1)(A) will need to complete the Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application, either online or on paper, and a paper Form 8946, PTIN Supplemental Application For Foreign Persons Without a Social Security Number. Only preparers that have a foreign (non-U.S.) address may file this form.

Individuals who have an Individual Taxpayer Identification Number (ITIN) are not eligible for a PTIN unless they are foreign persons with a permanent non-U.S. address.

Documentation to substantiate identity and eligibility must accompany the Form 8946. Documentation requirements and mailing information are included in the Form 8946 instructions.

Allow 4-6 weeks to process your PTIN application.  

4. I have a social security number, but have not filed an income tax return with the IRS. My individual income tax returns were filed with the Departamento de Hacienda (Puerto Rico). How do I obtain a PTIN? (updated 3/21/2014)

A Puerto Rican resident who has never filed a U.S. individual income tax return must submit a paper Form W-12 PTIN application. Ensure the address on Line 15 of the Form W-12 matches the information from your Hacienda tax return information. 

Include the following with your W-12 application:

  • Check or money order for $64.25 (make payable to IRS Tax Pro PTIN Fee)  
  • An original, certified, or notarized copy of your social security card along with one other government issued document that contains a current photo ID. Examples of acceptable supporting documents are listed below. All documents must be a current original, certified, or notarized and must verify your name. Refer to Form W-12 instructions for complete information regarding acceptable supporting documentation and application requirements.
    Examples of acceptable supporting documents:
    - Passport/Passport Card
    - Driver's License
    - U.S. State ID Card
    - Military ID Card
    - National ID card

Return to Return Preparer Program FAQs

Page Last Reviewed or Updated: 21-Mar-2014

The Irs Forms 1040nr

Irs forms 1040nr 2. Irs forms 1040nr   Electing the Section 179 Deduction Table of Contents Introduction Useful Items - You may want to see: What Property Qualifies?Eligible Property Property Acquired for Business Use Property Acquired by Purchase What Property Does Not Qualify?Land and Improvements Excepted Property How Much Can You Deduct?Dollar Limits Business Income Limit Partnerships and Partners S Corporations Other Corporations How Do You Elect the Deduction? When Must You Recapture the Deduction? Introduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Irs forms 1040nr This is the section 179 deduction. Irs forms 1040nr You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions. Irs forms 1040nr Estates and trusts cannot elect the section 179 deduction. Irs forms 1040nr This chapter explains what property does and does not qualify for the section 179 deduction, what limits apply to the deduction (including special rules for partnerships and corporations), and how to elect it. Irs forms 1040nr It also explains when and how to recapture the deduction. Irs forms 1040nr Useful Items - You may want to see: Publication 537 Installment Sales 544 Sales and Other Dispositions of Assets 954 Tax Incentives for Distressed Communities Form (and Instructions) 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. Irs forms 1040nr What Property Qualifies? To qualify for the section 179 deduction, your property must meet all the following requirements. Irs forms 1040nr It must be eligible property. Irs forms 1040nr It must be acquired for business use. Irs forms 1040nr It must have been acquired by purchase. Irs forms 1040nr It must not be property described later under What Property Does Not Qualify . Irs forms 1040nr The following discussions provide information about these requirements and exceptions. Irs forms 1040nr Eligible Property To qualify for the section 179 deduction, your property must be one of the following types of depreciable property. Irs forms 1040nr Tangible personal property. Irs forms 1040nr Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services, A research facility used in connection with any of the activities in (a) above, or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. Irs forms 1040nr Single purpose agricultural (livestock) or horticultural structures. Irs forms 1040nr See chapter 7 of Publication 225 for definitions and information regarding the use requirements that apply to these structures. Irs forms 1040nr Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. Irs forms 1040nr Off-the-shelf computer software. Irs forms 1040nr Qualified real property (described below). Irs forms 1040nr Tangible personal property. Irs forms 1040nr   Tangible personal property is any tangible property that is not real property. Irs forms 1040nr It includes the following property. Irs forms 1040nr Machinery and equipment. Irs forms 1040nr Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs. Irs forms 1040nr Gasoline storage tanks and pumps at retail service stations. Irs forms 1040nr Livestock, including horses, cattle, hogs, sheep, goats, and mink and other furbearing animals. Irs forms 1040nr   The treatment of property as tangible personal property for the section 179 deduction is not controlled by its treatment under local law. Irs forms 1040nr For example, property may not be tangible personal property for the deduction even if treated so under local law, and some property (such as fixtures) may be tangible personal property for the deduction even if treated as real property under local law. Irs forms 1040nr Off-the-shelf computer software. Irs forms 1040nr   Off-the-shelf computer software placed in service during the tax year is qualifying property for purposes of the section 179 deduction. Irs forms 1040nr This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. Irs forms 1040nr It includes any program designed to cause a computer to perform a desired function. Irs forms 1040nr However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software. Irs forms 1040nr Qualified real property. Irs forms 1040nr   You can elect to treat certain qualified real property you placed in service as section 179 property for tax years beginning in 2013. Irs forms 1040nr If this election is made, the term “section 179 property” will include any qualified real property that is: Qualified leasehold improvement property, Qualified restaurant property, or Qualified retail improvement property. Irs forms 1040nr The maximum section 179 expense deduction that can be elected for qualified section 179 real property is $250,000 of the maximum section 179 deduction of $500,000 in 2013. Irs forms 1040nr For more information, see Special rules for qualified section 179 real property, later. Irs forms 1040nr Also, see Election for certain qualified section 179 real property, later, for information on how to make this election. Irs forms 1040nr Qualified leasehold improvement property. Irs forms 1040nr   Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. Irs forms 1040nr   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. Irs forms 1040nr A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. Irs forms 1040nr Examples include the following. Irs forms 1040nr A complete liquidation of a subsidiary. Irs forms 1040nr A transfer to a corporation controlled by the transferor. Irs forms 1040nr An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Irs forms 1040nr Qualified restaurant property. Irs forms 1040nr   Qualified restaurant property is any section 1250 property that is a building or an improvement to a building placed in service after December 31, 2008, and before January 1, 2014. Irs forms 1040nr Also, more than 50% of the building’s square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals. Irs forms 1040nr Qualified retail improvement property. Irs forms 1040nr   Generally, this is any improvement (placed in service after December 31, 2008, and before January 1, 2014) to an interior portion of nonresidential real property if it meets the following requirements. Irs forms 1040nr The portion is open to the general public and is used in the retail trade or business of selling tangible property to the general public. Irs forms 1040nr The improvement is placed in service more than 3 years after the date the building was first placed in service. Irs forms 1040nr The expenses are not for the enlargement of the building, any elevator or escalator, any structural components benefiting a common area, or the internal structural framework of the building. Irs forms 1040nr In addition, an improvement made by the lessor does not qualify as qualified retail improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. Irs forms 1040nr A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. Irs forms 1040nr Examples include the following. Irs forms 1040nr A complete liquidation of a subsidiary. Irs forms 1040nr A transfer to a corporation controlled by the transferor. Irs forms 1040nr An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Irs forms 1040nr Property Acquired for Business Use To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. Irs forms 1040nr Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify. Irs forms 1040nr Partial business use. Irs forms 1040nr   When you use property for both business and nonbusiness purposes, you can elect the section 179 deduction only if you use the property more than 50% for business in the year you place it in service. Irs forms 1040nr If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use. Irs forms 1040nr Use the resulting business cost to figure your section 179 deduction. Irs forms 1040nr Example. Irs forms 1040nr May Oak bought and placed in service an item of section 179 property costing $11,000. Irs forms 1040nr She used the property 80% for her business and 20% for personal purposes. Irs forms 1040nr The business part of the cost of the property is $8,800 (80% × $11,000). Irs forms 1040nr Property Acquired by Purchase To qualify for the section 179 deduction, your property must have been acquired by purchase. Irs forms 1040nr For example, property acquired by gift or inheritance does not qualify. Irs forms 1040nr Property is not considered acquired by purchase in the following situations. Irs forms 1040nr It is acquired by one component member of a controlled group from another component member of the same group. Irs forms 1040nr Its basis is determined either— In whole or in part by its adjusted basis in the hands of the person from whom it was acquired, or Under the stepped-up basis rules for property acquired from a decedent. Irs forms 1040nr It is acquired from a related person. Irs forms 1040nr Related persons. Irs forms 1040nr   Related persons are described under Related persons earlier. Irs forms 1040nr However, to determine whether property qualifies for the section 179 deduction, treat as an individual's family only his or her spouse, ancestors, and lineal descendants and substitute "50%" for "10%" each place it appears. Irs forms 1040nr Example. Irs forms 1040nr Ken Larch is a tailor. Irs forms 1040nr He bought two industrial sewing machines from his father. Irs forms 1040nr He placed both machines in service in the same year he bought them. Irs forms 1040nr They do not qualify as section 179 property because Ken and his father are related persons. Irs forms 1040nr He cannot claim a section 179 deduction for the cost of these machines. Irs forms 1040nr What Property Does Not Qualify? Certain property does not qualify for the section 179 deduction. Irs forms 1040nr This includes the following. Irs forms 1040nr Land and Improvements Land and land improvements do not qualify as section 179 property. Irs forms 1040nr Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences. Irs forms 1040nr Excepted Property Even if the requirements explained earlier under What Property Qualifies are met, you cannot elect the section 179 deduction for the following property. Irs forms 1040nr Certain property you lease to others (if you are a noncorporate lessor). Irs forms 1040nr Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. Irs forms 1040nr Air conditioning or heating units. Irs forms 1040nr Property used predominantly outside the United States, except property described in section 168(g)(4) of the Internal Revenue Code. Irs forms 1040nr Property used by certain tax-exempt organizations, except property used in connection with the production of income subject to the tax on unrelated trade or business income. Irs forms 1040nr Property used by governmental units or foreign persons or entities, except property used under a lease with a term of less than 6 months. Irs forms 1040nr Leased property. Irs forms 1040nr   Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. Irs forms 1040nr This rule does not apply to corporations. Irs forms 1040nr However, you can claim a section 179 deduction for the cost of the following property. Irs forms 1040nr Property you manufacture or produce and lease to others. Irs forms 1040nr Property you purchase and lease to others if both the following tests are met. Irs forms 1040nr The term of the lease (including options to renew) is less than 50% of the property's class life. Irs forms 1040nr For the first 12 months after the property is transferred to the lessee, the total business deductions you are allowed on the property (other than rents and reimbursed amounts) are more than 15% of the rental income from the property. Irs forms 1040nr Property used for lodging. Irs forms 1040nr   Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. Irs forms 1040nr However, this does not apply to the following types of property. Irs forms 1040nr Nonlodging commercial facilities that are available to those not using the lodging facilities on the same basis as they are available to those using the lodging facilities. Irs forms 1040nr Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients. Irs forms 1040nr Any certified historic structure to the extent its basis is due to qualified rehabilitation expenditures. Irs forms 1040nr Any energy property. Irs forms 1040nr Energy property. Irs forms 1040nr   Energy property is property that meets the following requirements. Irs forms 1040nr It is one of the following types of property. Irs forms 1040nr Equipment that uses solar energy to generate electricity, to heat or cool a structure, to provide hot water for use in a structure, or to provide solar process heat, except for equipment used to generate energy to heat a swimming pool. Irs forms 1040nr Equipment placed in service after December 31, 2005, and before January 1, 2017, that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. Irs forms 1040nr Equipment used to produce, distribute, or use energy derived from a geothermal deposit. Irs forms 1040nr For electricity generated by geothermal power, this includes equipment up to (but not including) the electrical transmission stage. Irs forms 1040nr Qualified fuel cell property or qualified microturbine property placed in service after December 31, 2005, and before January 1, 2017. Irs forms 1040nr The construction, reconstruction, or erection of the property must be completed by you. Irs forms 1040nr For property you acquire, the original use of the property must begin with you. Irs forms 1040nr The property must meet the performance and quality standards, if any, prescribed by Income Tax Regulations in effect at the time you get the property. Irs forms 1040nr   For periods before February 14, 2008, energy property does not include any property that is public utility property as defined by section 46(f)(5) of the Internal Revenue Code (as in effect on November 4, 1990). Irs forms 1040nr How Much Can You Deduct? Your section 179 deduction is generally the cost of the qualifying property. Irs forms 1040nr However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. Irs forms 1040nr These limits apply to each taxpayer, not to each business. Irs forms 1040nr However, see Married Individuals under Dollar Limits , later. Irs forms 1040nr For a passenger automobile, the total section 179 deduction and depreciation deduction are limited. Irs forms 1040nr See Do the Passenger Automobile Limits Apply in chapter 5 . Irs forms 1040nr If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct. Irs forms 1040nr Trade-in of other property. Irs forms 1040nr   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 deduction includes only the cash you paid. Irs forms 1040nr Example. Irs forms 1040nr Silver Leaf, a retail bakery, traded two ovens having a total adjusted basis of $680 for a new oven costing $1,320. Irs forms 1040nr They received an $800 trade-in allowance for the old ovens and paid $520 in cash for the new oven. Irs forms 1040nr The bakery also traded a used van with an adjusted basis of $4,500 for a new van costing $9,000. Irs forms 1040nr They received a $4,800 trade-in allowance on the used van and paid $4,200 in cash for the new van. Irs forms 1040nr Only the portion of the new property's basis paid by cash qualifies for the section 179 deduction. Irs forms 1040nr Therefore, Silver Leaf's qualifying costs for the section 179 deduction are $4,720 ($520 + $4,200). Irs forms 1040nr Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 generally cannot be more than $500,000. Irs forms 1040nr If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $500,000. Irs forms 1040nr You do not have to claim the full $500,000. Irs forms 1040nr Qualified real property (described earlier) that you elected to treat as section 179 real property is limited to $250,000 of the maximum deduction of $500,000 for 2013. Irs forms 1040nr The amount you can elect to deduct is not affected if you place qualifying property in service in a short tax year or if you place qualifying property in service for only a part of a 12-month tax year. Irs forms 1040nr After you apply the dollar limit to determine a tentative deduction, you must apply the business income limit (described later) to determine your actual section 179 deduction. Irs forms 1040nr Example. Irs forms 1040nr In 2013, you bought and placed in service $500,000 in machinery and a $25,000 circular saw for your business. Irs forms 1040nr You elect to deduct $475,000 for the machinery and the entire $25,000 for the saw, a total of $500,000. Irs forms 1040nr This is the maximum amount you can deduct. Irs forms 1040nr Your $25,000 deduction for the saw completely recovered its cost. Irs forms 1040nr Your basis for depreciation is zero. Irs forms 1040nr The basis for depreciation of your machinery is $25,000. Irs forms 1040nr You figure this by subtracting your $475,000 section 179 deduction for the machinery from the $500,000 cost of the machinery. Irs forms 1040nr Situations affecting dollar limit. Irs forms 1040nr   Under certain circumstances, the general dollar limits on the section 179 deduction may be reduced or increased or there may be additional dollar limits. Irs forms 1040nr The general dollar limit is affected by any of the following situations. Irs forms 1040nr The cost of your section 179 property placed in service exceeds $2,000,000. Irs forms 1040nr Your business is an enterprise zone business. Irs forms 1040nr You placed in service a sport utility or certain other vehicles. Irs forms 1040nr You are married filing a joint or separate return. Irs forms 1040nr Costs exceeding $2,000,000 If the cost of your qualifying section 179 property placed in service in a year is more than $2,000,000, you generally must reduce the dollar limit (but not below zero) by the amount of cost over $2,000,000. Irs forms 1040nr If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. Irs forms 1040nr Example. Irs forms 1040nr In 2013, Jane Ash placed in service machinery costing $2,100,000. Irs forms 1040nr This cost is $100,000 more than $2,000,000, so she must reduce her dollar limit to $400,000 ($500,000 − $100,000). Irs forms 1040nr Enterprise Zone Businesses An increased section 179 deduction is available to enterprise zone businesses for qualified zone property placed in service during the tax year, in an empowerment zone. Irs forms 1040nr For more information including the definitions of “enterprise zone business” and “qualified zone property,” see sections 1397A, 1397C, and 1397D of the Internal Revenue Code. Irs forms 1040nr The dollar limit on the section 179 deduction is increased by the smaller of: $35,000, or The cost of section 179 property that is also qualified zone property placed in service before January 1, 2014 (including such property placed in service by your spouse, even if you are filing a separate return). Irs forms 1040nr Note. Irs forms 1040nr   You take into account only 50% (instead of 100%) of the cost of qualified zone property placed in service in a year when figuring the reduced dollar limit for costs exceeding $2,000,000 (explained earlier). Irs forms 1040nr Sport Utility and Certain Other Vehicles You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. Irs forms 1040nr This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. Irs forms 1040nr However, the $25,000 limit does not apply to any vehicle: Designed to seat more than nine passengers behind the driver's seat, Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible from the passenger compartment, or That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. Irs forms 1040nr Married Individuals If you are married, how you figure your section 179 deduction depends on whether you file jointly or separately. Irs forms 1040nr If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Irs forms 1040nr If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2,000,000. Irs forms 1040nr You must allocate the dollar limit (after any reduction) between you equally, unless you both elect a different allocation. Irs forms 1040nr If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. Irs forms 1040nr Example. Irs forms 1040nr Jack Elm is married. Irs forms 1040nr He and his wife file separate returns. Irs forms 1040nr Jack bought and placed in service $2,000,000 of qualified farm machinery in 2013. Irs forms 1040nr His wife has her own business, and she bought and placed in service $30,000 of qualified business equipment. Irs forms 1040nr Their combined dollar limit is $470,000. Irs forms 1040nr This is because they must figure the limit as if they were one taxpayer. Irs forms 1040nr They reduce the $500,000 dollar limit by the $30,000 excess of their costs over $2,000,000. Irs forms 1040nr They elect to allocate the $470,000 dollar limit as follows. Irs forms 1040nr $446,500 ($470,000 x 95%) to Mr. Irs forms 1040nr Elm's machinery. Irs forms 1040nr $23,500 ($470,000 x 5%) to Mrs. Irs forms 1040nr Elm's equipment. Irs forms 1040nr If they did not make an election to allocate their costs in this way, they would have to allocate $235,000 ($470,000 × 50%) to each of them. Irs forms 1040nr Joint return after filing separate returns. Irs forms 1040nr   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. Irs forms 1040nr The dollar limit (after reduction for any cost of section 179 property over $2,000,000). Irs forms 1040nr The total cost of section 179 property you and your spouse elected to expense on your separate returns. Irs forms 1040nr Example. Irs forms 1040nr The facts are the same as in the previous example except that Jack elected to deduct $30,000 of the cost of section 179 property on his separate return and his wife elected to deduct $2,000. Irs forms 1040nr After the due date of their returns, they file a joint return. Irs forms 1040nr Their dollar limit for the section 179 deduction is $32,000. Irs forms 1040nr This is the lesser of the following amounts. Irs forms 1040nr $470,000—The dollar limit less the cost of section 179 property over $2,000,000. Irs forms 1040nr $32,000—The total they elected to expense on their separate returns. Irs forms 1040nr Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Irs forms 1040nr Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. Irs forms 1040nr Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. Irs forms 1040nr Special rules apply to a 2013 deduction of qualified section 179 real property that is disallowed because of the business income limit. Irs forms 1040nr See Special rules for qualified section 179 property under Carryover of disallowed deduction, later. Irs forms 1040nr Taxable income. Irs forms 1040nr   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. Irs forms 1040nr Net income or loss from a trade or business includes the following items. Irs forms 1040nr Section 1231 gains (or losses). Irs forms 1040nr Interest from working capital of your trade or business. Irs forms 1040nr Wages, salaries, tips, or other pay earned as an employee. Irs forms 1040nr For information about section 1231 gains and losses, see chapter 3 in Publication 544. Irs forms 1040nr   In addition, figure taxable income without regard to any of the following. Irs forms 1040nr The section 179 deduction. Irs forms 1040nr The self-employment tax deduction. Irs forms 1040nr Any net operating loss carryback or carryforward. Irs forms 1040nr Any unreimbursed employee business expenses. Irs forms 1040nr Two different taxable income limits. Irs forms 1040nr   In addition to the business income limit for your section 179 deduction, you may have a taxable income limit for some other deduction. Irs forms 1040nr You may have to figure the limit for this other deduction taking into account the section 179 deduction. Irs forms 1040nr If so, complete the following steps. Irs forms 1040nr Step Action 1 Figure taxable income without the section 179 deduction or the other deduction. Irs forms 1040nr 2 Figure a hypothetical section 179 deduction using the taxable income figured in Step 1. Irs forms 1040nr 3 Subtract the hypothetical section 179 deduction figured in Step 2 from the taxable income figured in Step 1. Irs forms 1040nr 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. Irs forms 1040nr 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in Step 1. Irs forms 1040nr 6 Figure your actual section 179 deduction using the taxable income figured in Step 5. Irs forms 1040nr 7 Subtract your actual section 179 deduction figured in Step 6 from the taxable income figured in Step 1. Irs forms 1040nr 8 Figure your actual other deduction using the taxable income figured in Step 7. Irs forms 1040nr Example. Irs forms 1040nr On February 1, 2013, the XYZ corporation purchased and placed in service qualifying section 179 property that cost $500,000. Irs forms 1040nr It elects to expense the entire $500,000 cost under section 179. Irs forms 1040nr In June, the corporation gave a charitable contribution of $10,000. Irs forms 1040nr A corporation's limit on charitable contributions is figured after subtracting any section 179 deduction. Irs forms 1040nr The business income limit for the section 179 deduction is figured after subtracting any allowable charitable contributions. Irs forms 1040nr XYZ's taxable income figured without the section 179 deduction or the deduction for charitable contributions is $520,000. Irs forms 1040nr XYZ figures its section 179 deduction and its deduction for charitable contributions as follows. Irs forms 1040nr Step 1– Taxable income figured without either deduction is $520,000. Irs forms 1040nr Step 2– Using $520,000 as taxable income, XYZ's hypothetical section 179 deduction is $500,000. Irs forms 1040nr Step 3– $20,000 ($520,000 − $500,000). Irs forms 1040nr Step 4– Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. Irs forms 1040nr Step 5– $518,000 ($520,000 − $2,000). Irs forms 1040nr Step 6– Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 deduction. Irs forms 1040nr Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 deduction. Irs forms 1040nr Step 7– $20,000 ($520,000 − $500,000). Irs forms 1040nr Step 8– Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. Irs forms 1040nr Carryover of disallowed deduction. Irs forms 1040nr   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. Irs forms 1040nr This disallowed deduction amount is shown on line 13 of Form 4562. Irs forms 1040nr You use the amount you carry over to determine your section 179 deduction in the next year. Irs forms 1040nr Enter that amount on line 10 of your Form 4562 for the next year. Irs forms 1040nr   If you place more than one property in service in a year, you can select the properties for which all or a part of the costs will be carried forward. Irs forms 1040nr Your selections must be shown in your books and records. Irs forms 1040nr For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. Irs forms 1040nr If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year. Irs forms 1040nr   If costs from more than one year are carried forward to a subsequent year in which only part of the total carryover can be deducted, you must deduct the costs being carried forward from the earliest year first. Irs forms 1040nr Special rules for qualified section 179 real property. Irs forms 1040nr   You can carry over to 2013 a 2012 deduction attributable to qualified section 179 real property that you elected to expense but were unable to take because of the business income limitation. Irs forms 1040nr Any such 2012 carryover amounts that are not deducted in 2013, plus any 2013 disallowed section 179 expense deductions attributable to qualified real property, are not carried over to 2014. Irs forms 1040nr Instead these amounts are treated as property placed in service on the first day of 2013 for purposes of computing depreciation (including the special depreciation allowance, if applicable). Irs forms 1040nr See section 179(f) of the Internal Revenue Code and Notice 2013-59 for more information. Irs forms 1040nr If there is a sale or other disposition of your property (including a transfer at death) before you can use the full amount of any outstanding carryover of your disallowed section 179 deduction, neither you nor the new owner can deduct any of the unused amount. Irs forms 1040nr Instead, you must add it back to the property's basis. Irs forms 1040nr Partnerships and Partners The section 179 deduction limits apply both to the partnership and to each partner. Irs forms 1040nr The partnership determines its section 179 deduction subject to the limits. Irs forms 1040nr It then allocates the deduction among its partners. Irs forms 1040nr Each partner adds the amount allocated from partnerships (shown on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Irs forms 1040nr ) to his or her nonpartnership section 179 costs and then applies the dollar limit to this total. Irs forms 1040nr To determine any reduction in the dollar limit for costs over $2,000,000, the partner does not include any of the cost of section 179 property placed in service by the partnership. Irs forms 1040nr After the dollar limit (reduced for any nonpartnership section 179 costs over $2,000,000) is applied, any remaining cost of the partnership and nonpartnership section 179 property is subject to the business income limit. Irs forms 1040nr Partnership's taxable income. Irs forms 1040nr   For purposes of the business income limit, figure the partnership's taxable income by adding together the net income and losses from all trades or businesses actively conducted by the partnership during the year. Irs forms 1040nr See the Instructions for Form 1065 for information on how to figure partnership net income (or loss). Irs forms 1040nr However, figure taxable income without regard to credits, tax-exempt income, the section 179 deduction, and guaranteed payments under section 707(c) of the Internal Revenue Code. Irs forms 1040nr Partner's share of partnership's taxable income. Irs forms 1040nr   For purposes of the business income limit, the taxable income of a partner engaged in the active conduct of one or more of a partnership's trades or businesses includes his or her allocable share of taxable income derived from the partnership's active conduct of any trade or business. Irs forms 1040nr Example. Irs forms 1040nr In 2013, Beech Partnership placed in service section 179 property with a total cost of $2,025,000. Irs forms 1040nr The partnership must reduce its dollar limit by $25,000 ($2,025,000 − $2,000,000). Irs forms 1040nr Its maximum section 179 deduction is $475,000 ($500,000 − $25,000), and it elects to expense that amount. Irs forms 1040nr The partnership's taxable income from the active conduct of all its trades or businesses for the year was $600,000, so it can deduct the full $475,000. Irs forms 1040nr It allocates $40,000 of its section 179 deduction and $50,000 of its taxable income to Dean, one of its partners. Irs forms 1040nr In addition to being a partner in Beech Partnership, Dean is also a partner in the Cedar Partnership, which allocated to him a $30,000 section 179 deduction and $35,000 of its taxable income from the active conduct of its business. Irs forms 1040nr He also conducts a business as a sole proprietor and, in 2013, placed in service in that business qualifying section 179 property costing $55,000. Irs forms 1040nr He had a net loss of $5,000 from that business for the year. Irs forms 1040nr Dean does not have to include section 179 partnership costs to figure any reduction in his dollar limit, so his total section 179 costs for the year are not more than $2,000,000 and his dollar limit is not reduced. Irs forms 1040nr His maximum section 179 deduction is $500,000. Irs forms 1040nr He elects to expense all of the $70,000 in section 179 deductions allocated from the partnerships ($40,000 from Beech Partnership plus $30,000 from Cedar Partnership), plus $55,000 of his sole proprietorship's section 179 costs, and notes that information in his books and records. Irs forms 1040nr However, his deduction is limited to his business taxable income of $80,000 ($50,000 from Beech Partnership, plus $35,000 from Cedar Partnership minus $5,000 loss from his sole proprietorship). Irs forms 1040nr He carries over $45,000 ($125,000 − $80,000) of the elected section 179 costs to 2014. Irs forms 1040nr He allocates the carryover amount to the cost of section 179 property placed in service in his sole proprietorship, and notes that allocation in his books and records. Irs forms 1040nr Different tax years. Irs forms 1040nr   For purposes of the business income limit, if the partner's tax year and that of the partnership differ, the partner's share of the partnership's taxable income for a tax year is generally the partner's distributive share for the partnership tax year that ends with or within the partner's tax year. Irs forms 1040nr Example. Irs forms 1040nr John and James Oak are equal partners in Oak Partnership. Irs forms 1040nr Oak Partnership uses a tax year ending January 31. Irs forms 1040nr John and James both use a tax year ending December 31. Irs forms 1040nr For its tax year ending January 31, 2013, Oak Partnership's taxable income from the active conduct of its business is $80,000, of which $70,000 was earned during 2012. Irs forms 1040nr John and James each include $40,000 (each partner's entire share) of partnership taxable income in computing their business income limit for the 2013 tax year. Irs forms 1040nr Adjustment of partner's basis in partnership. Irs forms 1040nr   A partner must reduce the basis of his or her partnership interest by the total amount of section 179 expenses allocated from the partnership even if the partner cannot currently deduct the total amount. Irs forms 1040nr If the partner disposes of his or her partnership interest, the partner's basis for determining gain or loss is increased by any outstanding carryover of disallowed section 179 expenses allocated from the partnership. Irs forms 1040nr Adjustment of partnership's basis in section 179 property. Irs forms 1040nr   The basis of a partnership's section 179 property must be reduced by the section 179 deduction elected by the partnership. Irs forms 1040nr This reduction of basis must be made even if a partner cannot deduct all or part of the section 179 deduction allocated to that partner by the partnership because of the limits. Irs forms 1040nr S Corporations Generally, the rules that apply to a partnership and its partners also apply to an S corporation and its shareholders. Irs forms 1040nr The deduction limits apply to an S corporation and to each shareholder. Irs forms 1040nr The S corporation allocates its deduction to the shareholders who then take their section 179 deduction subject to the limits. Irs forms 1040nr Figuring taxable income for an S corporation. Irs forms 1040nr   To figure taxable income (or loss) from the active conduct by an S corporation of any trade or business, you total the net income and losses from all trades or businesses actively conducted by the S corporation during the year. Irs forms 1040nr   To figure the net income (or loss) from a trade or business actively conducted by an S corporation, you take into account the items from that trade or business that are passed through to the shareholders and used in determining each shareholder's tax liability. Irs forms 1040nr However, you do not take into account any credits, tax-exempt income, the section 179 deduction, and deductions for compensation paid to shareholder-employees. Irs forms 1040nr For purposes of determining the total amount of S corporation items, treat deductions and losses as negative income. Irs forms 1040nr In figuring the taxable income of an S corporation, disregard any limits on the amount of an S corporation item that must be taken into account when figuring a shareholder's taxable income. Irs forms 1040nr Other Corporations A corporation's taxable income from its active conduct of any trade or business is its taxable income figured with the following changes. Irs forms 1040nr It is figured before deducting the section 179 deduction, any net operating loss deduction, and special deductions (as reported on the corporation's income tax return). Irs forms 1040nr It is adjusted for items of income or deduction included in the amount figured in 1, above, not derived from a trade or business actively conducted by the corporation during the tax year. Irs forms 1040nr How Do You Elect the Deduction? You elect to take the section 179 deduction by completing Part I of Form 4562. Irs forms 1040nr If you elect the deduction for listed property (described in chapter 5), complete Part V of Form 4562 before completing Part I. Irs forms 1040nr For property placed in service in 2013, file Form 4562 with either of the following. Irs forms 1040nr Your original 2013 tax return, whether or not you file it timely. Irs forms 1040nr An amended return for 2013 filed within the time prescribed by law. Irs forms 1040nr An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Irs forms 1040nr The amended return must also include any resulting adjustments to taxable income. Irs forms 1040nr You must keep records that show the specific identification of each piece of qualifying section 179 property. Irs forms 1040nr These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. Irs forms 1040nr Election for certain qualified section 179 real property. Irs forms 1040nr   You can elect to expense certain qualified real property that you placed in service as section 179 property for tax years beginning in 2013. Irs forms 1040nr If you elect to treat this property as section 179 property, you must elect the application of the special rules for qualified real property described in section 179(f) of the Internal Revenue Code. Irs forms 1040nr   To make the election, attach a statement indicating you are “electing the application of section 179(f) of the Internal Revenue Code” with either of the following. Irs forms 1040nr Your original 2013 tax return, whether or not you file it timely. Irs forms 1040nr An amended return for 2013 filed within the time prescribed by law. Irs forms 1040nr The amended return must also include any adjustments to taxable income. Irs forms 1040nr   The statement should indicate your election to expense certain qualified real property under section 179(f) on your return. Irs forms 1040nr It must specify one or more of the three types of qualified property (described under Qualified real property ) to which the election applies, the cost of each such type, and the portion of the cost of each such property to be taken into account. Irs forms 1040nr Also, report this on line 6 of Form 4562. Irs forms 1040nr    The maximum section 179 expense deduction that can be taken for qualified section 179 real property is limited to $250,000. Irs forms 1040nr Revoking an election. Irs forms 1040nr   An election (or any specification made in the election) to take a section 179 deduction for 2013 can be revoked without IRS approval by filing an amended return. Irs forms 1040nr The amended return must be filed within the time prescribed by law. Irs forms 1040nr The amended return must also include any resulting adjustments to taxable income. Irs forms 1040nr Once made, the revocation is irrevocable. Irs forms 1040nr When Must You Recapture the Deduction? You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. Irs forms 1040nr In the year the business use drops to 50% or less, you include the recapture amount as ordinary income in Part IV of Form 4797. Irs forms 1040nr You also increase the basis of the property by the recapture amount. Irs forms 1040nr Recovery periods for property are discussed under Which Recovery Period Applies in chapter 4 . Irs forms 1040nr If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Irs forms 1040nr Instead, use the rules for recapturing depreciation explained in chapter 3 of Publication 544 under Section 1245 Property. Irs forms 1040nr For qualified real property (described earlier), see Notice 2013-59 for determining the portion of the gain that is attributable to section 1245 property upon the sale or other disposition of qualified real property. Irs forms 1040nr If the property is listed property (described in chapter 5 ), do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Irs forms 1040nr Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement. Irs forms 1040nr Figuring the recapture amount. Irs forms 1040nr   To figure the amount to recapture, take the following steps. Irs forms 1040nr Figure the depreciation that would have been allowable on the section 179 deduction you claimed. Irs forms 1040nr Begin with the year you placed the property in service and include the year of recapture. Irs forms 1040nr Subtract the depreciation figured in (1) from the section 179 deduction you claimed. Irs forms 1040nr The result is the amount you must recapture. Irs forms 1040nr Example. Irs forms 1040nr In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. Irs forms 1040nr The property is not listed property. Irs forms 1040nr The property is 3-year property. Irs forms 1040nr He elected a $5,000 section 179 deduction for the property and also elected not to claim a special depreciation allowance. Irs forms 1040nr He used the property only for business in 2011 and 2012. Irs forms 1040nr In 2013, he used the property 40% for business and 60% for personal use. Irs forms 1040nr He figures his recapture amount as follows. Irs forms 1040nr Section 179 deduction claimed (2011) $5,000. Irs forms 1040nr 00 Minus: Allowable depreciation using Table A-1 (instead of section 179 deduction):   2011 $1,666. Irs forms 1040nr 50   2012 2,222. Irs forms 1040nr 50   2013 ($740. Irs forms 1040nr 50 × 40% (business)) 296. Irs forms 1040nr 20 4,185. Irs forms 1040nr 20 2013 — Recapture amount $ 814. Irs forms 1040nr 80 Paul must include $814. Irs forms 1040nr 80 in income for 2013. Irs forms 1040nr If any qualified zone property placed in service during the year ceases to be used in an empowerment zone by an enterprise zone business in a later year, the benefit of the increased section 179 deduction must be reported as other income on your return. Irs forms 1040nr Prev  Up  Next   Home   More Online Publications